India on the Move

An examination of the volume and direction of internal trade in India

Abstract

While there is an almost unanimous view on the benefits of trade - fuelling economic growth, supporting a greater number of and better paying jobs, raising living standards, and enhancing the consumer surplus with affordable goods and services - contemporary research has primarily looked at external trade, i.e. trade across national borders. This has led to an under-appreciation of the quantum and the effects of internal trade. This is of particular significance for larger economies such as India. One reason is the relative paucity of data for tracking internal trade. This study proposes to make use of domestic taxation (VAT/GST/Sales Tax) data to get a sense of the volume and directions of internal trade with a special emphasis on India. The study quantifies interstate trade flows in India to amount to about 69% of the GDP when domestic movement of imported goods are included, and about 35% of the GDP when only domestically-produced goods are taken into account. Further, internal trade appears to be growing at more than twice the pace of growth of the GDP. Amongst other reasons, this enhanced economic integration is attributable to the transportation efficiency gains that have accrued after the introduction of the Goods & Services Tax (GST).